Movements Along and Shifts of the PPC (Cambridge International IGCSE Economics)

Movements along a PPC

Spec point — Movements along a PPC

• A movement in the PPC occurs when there is any change in the allocation of existing resources within an economy, such as the movement from point C to D

A PPC for an economy demonstrating the use of its resources to produce capital or consumer goods

Diagram explanation

• The use of PPC to depict opportunity cost

  • To produce one more unit of capital goods, this economy must give up production of some units of consumer goods (limited resources)

  • If this economy moves from point C (120, 150) to point D (225, 100), the opportunity cost of producing an additional 105 units of consumer goods is 50 capital goods

    • Resources have been reallocated in the economy

Shifts of a PPC

Spec point — Shifts of a PPC

• As opposed to a movement along the PPC described above, the entire PPC of an economy can shift inward or outward

Outward shifts of a PPC show economic growth and inward shifts show economic decline

Diagram explanation

• Economic growth occurs when there is an increase in the productive potential of an economy

• This is demonstrated by an outward shift (B) of the entire curve

  • More consumer goods and more capital goods can now be produced using all of the available resources

  • This shift is caused by an increase in the quality or quantity of the available factors of production

    • One example of how the quality of a factor of production can be improved is through the impact of training and education on labour

      • An educated workforce is a more productive workforce and the production possibilities increase

    • One example of how the quantity of a factor of production can be increased is through a change in migration policies

      • If an economy allows more foreign workers to work productively in the economy, then production possibilities increase

• Economic decline occurs when there is any impact on an economy that reduces the quantity or quality of the available factors of production

• This is demonstrated by an inward shift (A) of the entire curve

  • One example of how this may happen is to consider how the Japanese tsunami of 2011 devastated the production possibilities of Japan for many years
  • It shifted their PPC inward and resulted in economic decline